All the pieces were in place last week for a high-yield meltdown. The collapse of Third Avenue's distressed debt fund - the largest mutual fund failure since the financial crisis - sent high-yield spreads out to four-year highs. The Fed's rates hike will make access to capital more expensive for overly leveraged credits, while the worsening tumble in oil prices is merely preparing another round of defaults in the oil and gas sector. And junk bond funds saw their third-biggest week of withdrawals since such records have been kept. The market's bears - and there are plenty of them - looked down and saw the ground (or the icebergs) disappearing beneath their feet. Their logic makes perfect sense: as defaults rise and the energy sector rout goes from bad to worse, contagion will surely spread to every corner of the credit markets.
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